5 ETFs to buy this week

Look for stocks to bounce back from Friday's fear-based selling.

By Jamie Dlugosch Jan 31, 2011 10:11AM

Image: Exchange-traded funds (© ThinkStock/SuperStock)The market is so unbelievably predictable. A little mischief overseas brought to us by live television and stocks tumble.

 

No matter that demonstrations in Egypt will have any real impact on the global economy. It is amazing what the bears will do to spook the bulls. All it takes is a little fear and down we go.

 

Come on traders, time to get a backbone.

 

Well, if it was predictable that stocks would go down on geopolitical concerns it is only natural to think that stocks will go up as those concerns wane.

 

We have one more day of the January effect this week and I’m looking for the biggest correction from the small cap space. Traders should ride the iShares Russell 2000 (IWM) to profits this week.

Small cap stocks sold off more than 2% on Friday and they have generally struggled at a time that should be really bullish for stocks.


Although the market lost value last week our five ETF funds actually made some money. That said we were making much more before Friday. I really see no reason to change things up at this time.

 

Here are the five ETF’s to own this week and some of the reasons why::

 

iShares Russell 2000 (IWM) – Profit taking in the small cap market has run its course. Earnings remain very positive and a growing economy bodes well for smaller companies versus the larger stocks. Keep in mind that we are still in the early stages of economic recovery. Smaller companies tend to do much better in these moments. Look for smaller stocks to rally this week as we enter February.

SPDR KBW Regional Banking (KRE) – Bank stocks continued to slump losing nearly 2%. I still think longer term banks are positioned to do very well. One possible explanation for the weakness is Wall Street manipulation. Bigger banks want to buy smaller banks, but they don’t want to pay market prices. Wall Street can walk these stocks lower until the price is right. At that point the big banks step in and stocks reverse. I want to own this fund when that moment arrives.

 

ProShares Ultra Oil & Gas (DIG) – Oil prices rallied on Friday helping push this ETF to a gain of more than 2% for the week. This could be the trigger to a big rally in oil prices. Low supply and little interest by OPEC in increasing production suggest higher prices down the road. Only bearish hedge funds have kept oil below $100. Its coming and owning this ETF will help you profit handsomely from the move.

SPDR S&P Homebuilders (XHB) – I’m pretty certain that the homebuilding market will be little impacted by activity in Egypt. Selling these stocks makes no sense. Before Friday’s selling this ETF was up smartly. Look for a bounce back this week.

 

SPDR S&P 500 (SPY) – 2011 is turning into the year of the big stock. The S&P 500 was down only fractionally last week. Prior to Friday’s sell off the index was up again. Investors might want to ride this ETF train for the entirety of the year. There is money to be made owning larger company shares. This position has gone beyond a simple hedge for an aggressive portfolio. This is now the place to be to make money.

 

If the market rallies next week we could see the aggregate gain on these five funds reach 5%. Enjoy the ride.

 

Top Stocks for 2011.

Tags: etfoil
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